In 1996, Congress passed legislation that requires state and local
government nonqualified deferred compensation plans (Section 457 plans)
to hold all assets and income in a trust or other arrangement that is
for the exclusive benefit of employees. This new requirement applied
immediately to any new plans established after August 20, 1996. For
already existing plans, however, the trust could be established at any
time up to and including January 1, 1999.

January 1, 1999 is approaching rapidly. If the necessary changes
are not made by that date, the law passed by Congress will make the
state or local government nonqualified deferred compensation plan an
"ineligible" plan.

Most state and local government nonqualified deferred compensation
plans already hold plan assets and income in a separate account or an
annuity contract. However, these accounts or annuity contract are
designed so that they are held for the benefit of the state or local
government, not the plan participants. This means that if the state or
local government were to become insolvent, its creditors could be
entitled to these funds. Congress established the new trust requirement
in order to prevent this and to make sure that participants would
receive their share of plan assets.

State and local governments that currently use trusts, annuity
contracts, or custodial accounts to hold participant contributions will
need to make sure that the annuity contract or custodial account is
properly amended to include language stating that the assets are for the
exclusive benefit of plan participants.

The Internal Revenue Service has provided model language that can
be used for this purpose in Revenue Procedure 98-41. A copy of Revenue
Procedure 98-41 (Internal Revenue Bulletin 1998-32, 7) is available on
the IRS web site: www.irs.ustreas.gov/prod/bus_inf o/bullet.html. State
and local governments that do not currently use trust, annuity
contracts, or custodial accounts will need to establish one or more of
these investment vehicles.

Further information about recent changes in the law that apply to
section 457 plans can be found in the IRS documents below.